House Bill 537

AN ACT TO AMEND SECTION 27-7-15, MISSISSIPPI CODE OF 1972,
TO REVISE THE DEFINITION OF THE TERM "GROSS INCOME" FOR PURPOSES OF
THE STATE INCOME TAX LAW TO PARTIALLY EXCLUDE COMPENSATION RECEIVED BY A
NONRESIDENT OF THIS STATE FOR ACTIVE FEDERAL SERVICE AS A MEMBER OF THE ARMED
FORCES OF THE UNITED STATES IN AN ACTIVE DUTY STATUS WHILE SUCH PERSON IS
STATIONED IN THE STATE OF MISSISSIPPI; AND FOR RELATED PURPOSES.

27-7-15.
(1) For the purposes of this
article, except as otherwise provided, the term "gross income" means
and includes the income of a taxpayer derived from salaries, wages, fees or
compensation for service, of whatever kind and in whatever form paid, including
income from governmental agencies and subdivisions thereof; or from
professions, vocations, trades, businesses, commerce or sales, or renting or
dealing in property, or reacquired property; also from annuities, interest,
rents, dividends, securities, insurance premiums, reinsurance premiums,
considerations for supplemental insurance contracts, or the transaction of any
business carried on for gain or profit, or gains, or profits, and income derived
from any source whatever and in whatever form paid. The amount of all such items of income shall be included in the
gross income for the taxable year in which received by the taxpayer. The amount by which an eligible employee's
salary is reduced pursuant to a salary reduction agreement authorized under
Section 25-17-5 shall be excluded from the term "gross income" within
the meaning of this article.

(2)
In determining gross income for the purpose of this section, the
following, under regulations prescribed by the commissioner, shall be
applicable:

(a)
Dealers in property.
Federal rules, regulations and revenue procedures shall be followed with
respect to installment sales unless a transaction results in the shifting of
income from inside the state to outside the state.

(b)
Casual sales of property.

(i) Prior to January 1, 2001, federal rules, regulations and revenue
procedures shall be followed with respect to installment sales except they
shall be applied and administered as if H.R. 3594, the Installment Tax
Correction Act of 2000 of the 106th Congress, had not been enacted. This provision will generally affect
taxpayers, reporting on the accrual method of accounting, entering into
installment note agreements on or after December 17, 1999. Any gain or profit resulting from the casual
sale of property will be recognized in the year of sale.

(ii) From and after January 1, 2001, federal rules, regulations and
revenue procedures shall be followed with respect to installment sales except
as provided in this subparagraph (ii).
Gain or profit from the casual sale of property shall be recognized in
the year of sale. When a taxpayer
recognizes gain on the casual sale of property in which the gain is deferred
for federal income tax purposes, a taxpayer may elect to defer the payment of
tax resulting from the gain as allowed and to the extent provided under
regulations prescribed by the commissioner.
If the payment of the tax is made on a deferred basis, the tax shall be
computed based on the applicable rate for the income reported in the year the
payment is made. Except as otherwise
provided in subparagraph (iii) of this paragraph (b), deferring the payment of
the tax shall not affect the liability for the tax. If at any time the installment note is sold, contributed,
transferred or disposed of in any manner and for any purpose by the original
note holder, or the original note holder is merged, liquidated, dissolved or
withdrawn from this state, then all deferred tax payments under this section shall
immediately become due and payable.

(iii) If the selling price of the property is reduced by any alteration
in the terms of an installment note, including default by the purchaser, the
gain to be recognized is recomputed based on the adjusted selling price in the
same manner as for federal income tax purposes. The tax on this amount, less the previously paid tax on the
recognized gain, is payable over the period of the remaining installments. If the tax on the previously recognized gain
has been paid in full to this state, the return on which the payment was made
may be amended for this purpose only.
The statute of limitations in Section 27-7-49 shall not bar an amended
return for this purpose.

(c)
Reserves of insurance companies.
In the case of insurance companies, any amounts in excess of the legally
required reserves shall be included as gross income.

(d)
Affiliated companies or persons.
As regards sales, exchanges or payments for services from one to another
of affiliated companies or persons or under other circumstances where the
relation between the buyer and seller is such that gross proceeds from the sale
or the value of the exchange or the payment for services are not indicative of
the true value of the subject matter of the sale, exchange or payment for
services, the commissioner shall prescribe uniform and equitable rules for
determining the true value of the gross income, gross sales, exchanges or
payment for services, or require consolidated returns of affiliates.

(e)
Alimony and separate maintenance payments. The federal rules, regulations and revenue
procedures in determining the deductibility and taxability of alimony payments
shall be followed in this state.

(f)
Reimbursement for expenses of moving. There shall be included in gross income (as compensation for
services) any amount received or accrued, directly or indirectly, by an
individual as a payment for or reimbursement of expenses of moving from one
residence to another residence which is attributable to employment or self-employment.

(3)
In the case of taxpayers other than residents, gross income includes
gross income from sources within this state.

(4)
The words "gross income" do not include the following items of
income which shall be exempt from taxation under this article:

(a)
The proceeds of life insurance policies and contracts paid upon the
death of the insured. However, the
income from the proceeds of such policies or contracts shall be included in the
gross income.

(b)
The amount received by the insured as a return of premium or premiums
paid by him under life insurance policies, endowment, or annuity contracts,
either during the term or at maturity or upon surrender of the contract.

(c)
The value of property acquired by gift, bequest, devise or descent, but
the income from such property shall be included in the gross income.

(d)
Interest upon the obligations of the United States or its possessions,
or securities issued under the provisions of the Federal Farm Loan Act of July
17, 1916, or bonds issued by the War Finance Corporation, or obligations of the
State of Mississippi or political subdivisions thereof.

(e)
The amounts received through accident or health insurance as
compensation for personal injuries or sickness, plus the amount of any damages
received for such injuries or such sickness or injuries, or through the War
Risk Insurance Act, or any law for the benefit or relief of injured or disabled
members of the military or naval forces of the United States.

(f)
Income received by any religious denomination or by any institution or
trust for moral or mental improvements, religious, Bible, tract, charitable,
benevolent, fraternal, missionary, hospital, infirmary, educational,
scientific, literary, library, patriotic, historical or cemetery purposes or
for two (2) or more of such purposes, if such income be used exclusively for
carrying out one or more of such purposes.

(g)
Income received by a domestic corporation which is "taxable in
another state" as this term is defined in this article, derived from
business activity conducted outside this state. Domestic corporations taxable both within and without the state
shall determine Mississippi income on the same basis as provided for foreign
corporations under the provisions of this
article.

(h)
In case of insurance companies, there shall be excluded from gross
income such portion of actual premiums received from an individual policyholder
as is paid back or credited to or treated as an abatement of premiums of such
policyholder within the taxable year.

(i)
Income from dividends that has already borne a tax as dividend income
under the provisions of this article, when such dividends may be specifically
identified in the possession of the recipient.

(j)
Amounts paid by the United States to a person as added compensation for
hazardous duty pay as a member of the Armed Forces of the United States in a
combat zone designated by Executive Order of the President of the United
States.

(k)
Amounts received as retirement allowances, pensions, annuities or
optional retirement allowances paid under the federal Social Security Act, the
Railroad Retirement Act, the Federal Civil Service Retirement Act, or any other
retirement system of the United States government, retirement allowances paid
under the Mississippi Public Employees' Retirement System, Mississippi Highway
Safety Patrol Retirement System or any other retirement system of the State of
Mississippi or any political subdivision thereof. The exemption allowed under this paragraph (k) shall be available
to the spouse or other beneficiary at the death of the primary retiree.

(l)
Amounts received as retirement allowances, pensions, annuities or
optional retirement allowances paid by any public or governmental retirement
system not designated in paragraph (k) or any private retirement system or plan
of which the recipient was a member at any time during the period of his
employment. Amounts received as a
distribution under a Roth Individual Retirement Account shall be treated in the
same manner as provided under the Internal Revenue Code of 1986, as
amended. The exemption allowed under
this paragraph (l) shall be available to the spouse or other beneficiary at the
death of the primary retiree.

(m)
Compensation not to exceed the aggregate sum of Five Thousand Dollars
($5,000.00) for any taxable year received by a member of the National Guard or
Reserve Forces of the United States as payment for inactive duty training,
active duty training and state active duty.

(n)
Compensation received for active service as a member below the grade of
commissioned officer and so much of the compensation as does not exceed the
maximum enlisted amount received for active service as a commissioned officer
in the Armed Forces of the United States for any month during any part of which
such members of the Armed Forces (i) served in a combat zone as designated by
Executive Order of the President of the United States or a qualified hazardous
duty area as defined by federal law, or both; or (ii) was hospitalized as a
result of wounds, disease or injury incurred while serving in such combat
zone. For the purposes of this
paragraph (n), the term "maximum enlisted amount" means and has the
same definition as that term has in 26 USCS 112.

(o)
The proceeds received from federal and state forestry incentives
programs.

(p)
The amount representing the difference between the increase of gross
income derived from sales for export outside the United States as compared to
the preceding tax year wherein gross income from export sales was highest, and
the net increase in expenses attributable to such increased exports. In the absence of direct accounting the
ratio of net profits to total sales may be applied to the increase in export
sales. This paragraph (p) shall only
apply to businesses located in this state engaging in the international export
of Mississippi goods and services. Such
goods or services shall have at least fifty percent (50%) of value added at a
location in Mississippi.

(q)
Amounts paid by the federal government for the construction of soil
conservation systems as required by a conservation plan adopted pursuant to 16
USCS 3801 et seq.

(r)
The amount deposited in a medical savings account, and any interest
accrued thereon, that is a part of a medical savings account program as
specified in the Medical Savings Account Act under Sections 71-9-1 through 71-9-9;
provided, however, that any amount withdrawn from such account for purposes
other than paying eligible medical expense or to procure health coverage shall
be included in gross income.

(s)
Amounts paid by the Mississippi Soil and Water Conservation Commission
from the Mississippi Soil and Water Cost-Share Program for the installation of
water quality best management practices.

(t)
Dividends received by a holding corporation, as defined in Section 27-13-1,
from a subsidiary corporation, as defined in Section 27-13-1.

(u)
Interest, dividends, gains or income of any kind on any account in the
Mississippi Affordable College Savings Trust Fund, as established in Sections
37-155-101 through 37-155-125, to the extent that such amounts remain on
deposit in the MACS Trust Fund or are withdrawn pursuant to a qualified
withdrawal, as defined in Section 37-155-105.

(v)
Interest, dividends or gains accruing on the payments made pursuant to a
prepaid tuition contract, as provided for in Section 37-155-17.

(w)
Income resulting from transactions with a related member where the
related member subject to tax under this chapter was required to, and did in
fact, add back the expense of such transactions as required by Section 27-7-17(2). Under no circumstances may the exclusion
from income exceed the deduction add-back of the related member, nor shall the
exclusion apply to any income otherwise excluded under this chapter.

(x)
Amounts that are subject to the tax levied pursuant to Section 27-7-901,
and are paid to patrons by gaming establishments licensed under the Mississippi
Gaming Control Act.

(y)
Amounts that are subject to the tax levied pursuant to Section 27-7-903,
and are paid to patrons by gaming establishments not licensed under the
Mississippi Gaming Control Act.

(z)
Interest, dividends, gains or income of any kind on any account in a
qualified tuition program and amounts received as distributions under a
qualified tuition program shall be treated in the same manner as provided under
the United States Internal Revenue Code, as amended. For the purposes of this paragraph (z), the term "qualified
tuition program" means and has the same definition as that term has in 26
USCS 529.

(aa)
The amount deposited in a health savings account, and any interest
accrued thereon, that is a part of a health savings account program as
specified in the Health Savings Accounts Act created in Sections 83-62-1
through 83-62-9; however, any amount withdrawn from such account for purposes
other than paying qualified medical expenses or to procure health coverage
shall be included in gross income, except as otherwise provided by Sections 83-62-7
and 83-62-9.

(bb) Amounts received as qualified disaster
relief payments shall be treated in the same manner as provided under the
United States Internal Revenue Code, as amended.

(cc)
Amounts received as a "qualified Hurricane Katrina
distribution" as defined in the United States Internal Revenue Code, as
amended.

(dd) Compensation received by a nonresident for active federal service
as a member of the Armed Forces of the United States in an active duty status
while such person is stationed in the State of Mississippi pursuant to military
orders shall be excluded from gross income in the same amount as provided in
paragraph (m) of this subsection (4) for compensation received by a member of
the National Guard or Reserve Forces of the United States.

(5)
Prisoners of war, missing in action-taxable status.

(a)
Members of the Armed Forces.
Gross income does not include compensation received for active service
as a member of the Armed Forces of the United States for any month during any
part of which such member is in a missing status, as defined in paragraph (d)
of this subsection, during the Vietnam Conflict as a result of such conflict.

(b)
Civilian employees. Gross
income does not include compensation received for active service as an employee
for any month during any part of which such employee is in a missing status
during the Vietnam Conflict as a result of such conflict.

(c)
Period of conflict. For
the purpose of this subsection, the Vietnam Conflict began February 28, 1961,
and ends on the date designated by the President by Executive Order as the date
of the termination of combatant activities in Vietnam. For the purpose of this subsection, an
individual is in a missing status as a result of the Vietnam Conflict if
immediately before such status began he was performing service in Vietnam or
was performing service in Southeast Asia in direct support of military
operations in Vietnam. "Southeast
Asia," as used in this paragraph, is defined to include Cambodia, Laos,
Thailand and waters adjacent thereto.

(d)
"Missing status" means the status of an employee or member of
the Armed Forces who is in active service and is officially carried or
determined to be absent in a status of (i) missing; (ii) missing in action;
(iii) interned in a foreign country; (iv) captured, beleaguered or besieged by
a hostile force; or (v) detained in a foreign country against his will; but
does not include the status of an employee or member of the Armed Forces for a
period during which he is officially determined to be absent from his post of
duty without authority.

(e)
"Active service" means active federal service by an employee
or member of the Armed Forces of the United States in an active duty status.

(f)
"Employee" means one who is a citizen or national of the
United States or an alien admitted to the United States for permanent residence
and is a resident of the State of Mississippi and is employed in or under a
federal executive agency or department of the Armed Forces.

(h)
If refund or credit of any overpayment of tax for any taxable year
resulting from the application of subsection (5) of this section is prevented by the operation of any law or rule
of law, such refund or credit of such overpayment of tax may, nevertheless, be
made or allowed if claim therefor is filed with the State Tax Commission within
three (3) years after the date of the enactment of this subsection.

(i)
The provisions of this subsection shall be effective for taxable years
ending on or after February 28, 1961.

(6)
A shareholder of an S corporation, as defined in Section 27-8-3(1)(g),
shall take into account the income, loss, deduction or credit of the S
corporation only to the extent provided in Section 27-8-7(2).

SECTION
2. Nothing in this act shall affect
or defeat any claim, assessment, appeal, suit, right or cause of action for
taxes due or accrued under the income tax laws before the date on which this
act becomes effective, whether such claims, assessments, appeals, suits or
actions have been begun before the date on which this act becomes effective or
are begun thereafter; and the provisions of the income tax laws are expressly
continued in full force, effect and operation for the purpose of the
assessment, collection and enrollment of liens for any taxes due or accrued and
the execution of any warrant under such laws before the date on which this act
becomes effective, and for the imposition of any penalties, forfeitures or
claims for failure to comply with such laws.

SECTION
3. This act shall take effect and
be in force from and after January 1, 2006.